Life Insurance

 

Types of Life Insurance

 

Term Assurance - pays a tax free lump sum in the event of death during a specified period in return for a fixed monthly, or annual, premium. At the end of the term the policy finishes and there is no maturity or cash value. As a result this is the cheapest and simplest form of life cover available. There are two types available, Level and Decreasing.

 

Level Term Assurance

 

Level Term Assurance is the most basic type of life assurance. It provides a lump sum which will remain constant during the term of the plan. For fixed monthly payments, the amount of life cover (also known as the sum assured) is guaranteed for a fixed term. The lump sum is paid out if death occurs before the policy ends. If the policy expires and the life assured is still alive, no payment is made. Some term assurance policies have a Terminal Illness benefit - This benefit means that the sum assured will pay out if you are diagnosed as having less than 12 months to live - in simple terms an advance payout (subject to certain conditions).

 

Decreasing Term Life Insurance & Mortgage Protection Insurance

 

With Mortgage Protection Insurance (also known as Decreasing Term Assurance) you pay a fixed monthly premium but, instead of the life cover remaining level, it gradually reduces over the term of the policy. It is most commonly used together with a repayment mortgage and the sum assured reduces broadly in line with the amount outstanding on the mortgage over the term. The reducing life cover means that the cost of this type of policy is lower than that of Level Term Assurance.

 

Family Income Benefit Insurance

 

Rather than paying out a lump sum should you die during the selected term, a Family Income Benefit policy pays out a regular tax free income for your dependants for the remainder of the plan term. The amount of income benefit usually remains level over the plan term selected, although you can request that benefits increase in line with inflation as an optional extra. As an example, if you select a £15000 per annum family income benefit plan over 25 years, and die at the end of year 10, then your dependants will receive £15,000.00 every year for the remainder of the term i.e. 15 years (£225,000.00 in total).